Health Insurer May Not Take All of Auto Accident Victim’s Recovery, Third Circuit Rules – U.S. Airways v. McCutchen

As a Philadelphia injury lawyer, I frequently work on cases involving more than one insurance company claiming the same limited amount of settlement or verdict money. Health insurers, for example, may be entitled to repayment from insurance companies, reducing the recovery paid to the victim. This can delay the ends of cases, and the payout to the victim, while legal relationships are worked out. But rarely have I read about a case like U.S. Airways Inc. v. McCutchen, in which an employee benefits plan sought to recover so much money from a small settlement that the victim actually would have been unable to fully pay his attorneys, and had nothing left for himself. In this case, the Third U.S. Circuit Court of Appeals decided that U.S. Airways was not entitled to recover all its costs without respect to attorney fees.

James McCutchen of western Pennsylvania was seriously injured after another driver crossed the median of the road and slammed into his car, triggering a chain reaction in which a truck also rear-ended his car. After emergency surgery, McCutchen survived but was permanently disabled at the age of 51. His employee benefits plan, administered and financed by U.S. Airways, paid a total of $66,866 for his medical treatment. The insurance for the driver who hit McCutchen had only $10,000 after paying other victims, and McCutchen was able to recover another $100,000 from his own underinsured motorist insurance. After paying his attorneys, he received less than $66,000 — but U.S. Airways sued to recover the entire $66,866 it had paid for his care. The attorneys placed their fee ($41,500) in a trust account for the litigation. The airline argued, and the district court eventually agreed, that language in the benefits plan entitled it to recover the entire amount, without respect to attorney fees. The attorneys lost their fee and McCutchen paid an additional $25,366 from his recovery. They appealed.

The Third Circuit’s opinion said ERISA, the federal law governing the kind of plan U.S. Airways offered, gives plan administrators the right to enforce terms, but limits the right to an injunction or “other appropriate equitable relief.” Previous U.S. Supreme Court decisions have determined that a claim like this one is equitable, but have not established what would be “appropriate” equitable relief. McCutchen argued that the recovery sought by U.S. Airways is not appropriate. The Third’s analysis said appropriate equitable relief should be something less than all equitable relief, which in turn is less than all relief under caselaw. Indeed, the court said, it would be strange for Congress to intend “appropriate equitable relief” without including any traditionally applicable defenses or doctrines. Allowing U.S. Airways to collect the full amount would give it a windfall at McCutchen’s expense, without the airline exercising subrogation rights or contributing to McCutchen’s legal team. The Third sent back the decision to the district court for consideration of what relief for the airline could be “appropriate.”

As a Philadelphia accident lawyer, I’m pleased but not surprised to see this outcome for McCutchen. This kind of claim by a benefits plan is not usual — indeed, the Third observed in a footnote that “U.S. Airways’ claim to reimbursement from McCutchen’s pocket is unprecedented.” It’s worth keeping in mind that McCutchen was permanently disabled at the age of 51 because of someone else’s bad driving. The money he recovered from insurance was intended to compensate him for the medical and legal bills he incurred as a result. It was far less than he likely needs, but all that was available — which makes it even more disturbing that a major airline’s employee benefits plan felt entitled to take it. It’s also worth keeping in mind that McCutchen paid insurance premiums to the plan in exchange for the insurance coverage that U.S. Airways essentially attempted to take away in this case. As a Philadelphia personal injury lawyer, I’m pleased to see that it did not succeed.
Rosenbaum & Associates, based in Philadelphia, represents clients who have been injured because of someone else’s negligence. If you’d like to tell us your story and learn more about your legal options, call us today at 1-800-7-LEGAL-7 or send us a message online.